Haven't we all wondered whether or not money buys happiness? In other words, if you have more money, will you be happier? If only it were as easy to answer that question as it is to ask it. Much research has been done on the subject and the answer seems to be that, yes, money is important to well being, but it depends.

What the Experts Tells Us

It is clear that wealthy nations have higher average levels of happiness than poorer nations (If you're reading this, you've got this one covered). Within countries, wealthier people tend to be happier than poorer people. There are interesting details and exceptions, however. In a famous measure of life satisfaction of people all over the world, not surprisingly, homeless people (in Fresno, CA and Calcutta) were the least happy. However, people on Forbes Magazine's "richest Americans" list reported the same level of happiness as did the Pennsylvania Amish, the Inuit people in Greenland and the African Maasai tribe who have no electricity or running water.

Although income levels in the United States have increased dramatically since World War II, happiness levels have not.

It has been found that beyond a relatively low level of income (in 2002, that level was estimated to be about $10,000 a year), happiness does not increase significantly with increase in income.

So while there is a link between money and happiness, money's effect on happiness in not as big as we may think. Beyond a certain point, lots more money may mean little or no more happiness.

Money Mindsets

A more powerful influence on your happiness seems to be how you think about money. More important than the actual figures on your paycheck or in your bank account are your thoughts about what that means.

There are some habits of thought that can cancel money's positive effect on happiness.

Say you make $50,000 and year and your neighbor makes $100,000 a year. Those figures do not predict happiness. If your desires fit within your income you will be happier than your neighbor if he wants more than he can afford. Your neighbor may feel poorer if he wants and needs so much beyond his means. But say,however, you compare your income or material goods with that of your neighbor. You may be the one feeling unhappy (such is the danger of comparing). What's interesting is that this "social comparison" may explain why, within countries, richer people are happier than poorer people. It's not the actual money that makes them happier; it's the feeling that comes with having more money than the reference group (This happens when we compare ourselves to the "norm" in other areas such as intelligence and beauty). As long as we see ourselves as "worse off" than whoever we compare ourselves to, we will feel worse.

And then there is materialism: thinking money is the most important thing and wanting money more than you want relationships and experiences. Materialistic people tend to be less happy than others. They also tend to earn more money than others, but their mindset cancels out some of the benefits of having more money. They may replace one materialistic goal with another and never feel successful. They may always want more money than they have and take time away from family, friends, and hobbies in order to earn more.

Researchers took some college graduates and asked about their life goals. Some students had "purpose goals" - aspirations to help others, to learn, to grow. Others had "profit goals" - to achieve wealth or fame. The graduates were tracked down a couple years later and asked how they were doing. Those with the "purpose goals" who felt they were attaining their goals reported higher levels of well being than when they were in college. Those with "profit goals" who were also achieving their goals were no happier than when they were students and they actually reported increases in anxiety and depression.

So if mindsets like some above don't work for us, how is it helpful to think about money (so that we have more and feel happy about what we have)? I am cooking up some practical suggestions for improving your relationship with money and how to spend it more happily too. All of this in the March Newsletter: Simple Green Edition. It goes out this week! If you've been missing it, sign up on my website.